Wednesday, February 01, 2017

older case about materiality v. consumer skepticism: a question of fact

Duraflame, Inc. v. Hearthmark, LLC, 2013 WL 12177870, No. CV 12-01205 (N.D. Cal. Feb. 2, 2013)

Duraflame alleged that many people bought Duraflame’s artificial firelogs because they used renewable resources, and consumers are willing to pay a premium to purchase such products. Hearthmark also markets “natural” firelogs made from “renewable” resources, but Duraflame alleged that consumers wouldn’t think that such firelogs contained or were derived from petroleum, coal, natural gas or petrochemicals, and that Hearthmark’s firelogs did.

In addition, Duraflame alleged that Hearthmark reduced the weight of its firelogs and began selling them as “2 Hour Fire,” “3 Hour Fire,” or “4 Hour Fire” logs, which was likely to lead consumers to believe that the new, lighter “2 Hour Fire” firelog was comparable to the three-pound firelog that had been marketed as burning for up to two hours, etc.  Duraflame also alleged that a substantial percentage of defendant’s products fail to burn for the length of time advertised on the package.

Here, the court denied Hearthmark summary judgment on several issues that recur from time to time.   Hearthmark argued that the terms “natural” and “renewable” have no precise definition within the firelog industry, and that no regulatory body with jurisdiction over the industry has imposed a definition.  But Hearthmark itself dedicated “much of its marketing efforts to educate potential customers on the distinctions between its natural-and petroleum-based products.” Market research apparently confirmed that end consumers both prefer a “plant-based” wax firelog over a petroleum-based one and that a majority are willing to pay a premium for such a product. It was at least a question of fact whether consumers understand “all natural” or “renewable” to be synonymous with “plant-based,” and Duraflame had test results indicating the composition of Hearthmark’s firelogs wasn’t reliably free of petroleum-based materials.  Plus, Hearthmark’s business model is to to produce products similar to Duraflame’s, but to offer them at lower prices, so it was reasonable to infer that Hearthmark’s interpretation of the terms “all natural” and “renewable” was the same as Duraflame’s.

Materiality was also a question of fact for the jury, given that  31% of firelog purchasers say “made from 100% natural materials” is ‘Extremely’ or ‘Very’ important to their purchasing decision. Even if that only showed that consumers generally like the “concept” of “natural” and “renewable” firelogs, such a preference was enough to go to the jury.

Hearthmark argued that Duraflame hadn’t shown materiality the primary customers for these two companies - the retail giants who make purchasing decisions for the store’s inventory—but the retail giants were sophisticated purchasers who were aware of the preferences of the end consumers, and made purchasing decisions accordingly. Major retailers even requested sales presentations focused on “natural” and “renewable” products.

Although Hearthmark didn’t submit any evidence to show that its products were free from non-renewable materials, the burden was on Duraflame to prove that Hearthmark was indeed selling products that are not “all natural” or made from “renewable products.”

Duraflame also raised a question of fact whether a significant percentage of Hearthmark’s 4.8 pound “4 Hour Fire” logs burn for less than four hours. In one of the few explicit considerations of the role of individual product variance, the court noted that Hearthmark’s own minimum acceptable burn time for its “4 Hour” firelogs is three hours and twenty minutes, and the upper end of the target range is six hours. “A trier of fact must determine whether this window of acceptable burn times accurately reflects Hearthmark’s statement that its firelogs burn for four hours.”

And in one of the few explicit considerations of customer skepticism about ads, Hearthmark contested materiality by pointing to Duraflame’s customer surveys in which purchasers of both parties’ firelogs stated they believed the “4 Hour” firelogs would burn, on average, for three and a half hours.  The court found that whether this survey showed immateriality was a question of fact, not of law; I would have preferred rejecting this as a matter of law, since consumer perception of what claim was made should govern, not consumer skepticism about advertising.  Moreover, Duraflame pointed to evidence that consumer complaints about the short burn time of Hearthmark’s products was a major issue for the company, and to consumer surveys indicating that burn time was the most important feature in making a purchasing decision.  This raised a question of fact for the jury.

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